The employee lifetime value (ELTV) lens: A practical asset and tool for HR and talent leaders

8 mins, 24 secs read time

For today’s HR and talent leaders, the notion of Employee Lifetime Value (ELTV) is rapidly moving past just having a common definition – it’s becoming increasingly intertwined with driving numerous People and Human Capital management goals and initiatives.

ELTV: A thumbnail definition

So what exactly is ELTV? Simply put, Employee Lifetime Value is often defined as the total net value over time that an employee brings to an organization, through both their direct and indirect contributions and actions.

For visual learners, the concept is illustrated in the graph below, which presents ELTV in terms of the employee lifecycle. The X axis represents time, spanning from the start date to the day the employee leaves, and the Y axis represents employee output. (Note: The numbers on the Y axis represent relative value).

Today’s leading HR and talent executives know that maximizing employee lifetime value is core to their job, and that designing programs and upholding practices to ensure a positive ELTV begins with two things:

1. Knowing its key drivers and barriers
2. Educating and influencing the company on how to best measure and manage both of the above

Why is this important? Following this blueprint is helpful to ensure companies are realizing ROI on all people-related costs and investments – given these often account for 70% or more of a typical operating budget.

How to measure ELTV

There are three critical dimensions of employee lifetime value that provide reliable and meaningful results.

One method to measure ELTV is to calculate your company’s average yearly revenue, divide it by the number of employees contributing to the revenue, and then multiply by the average tenure of those employees. That’s your average ELTV metric.

Employee onboarding lays a strong foundation for ELTV

Without question, employee onboarding is critical for building strong employee lifetime value. It’s often the biggest missed opportunity for organizations to retain top talent and get new hires up to speed quickly. And there’s plenty of data to back this up:

20% of employees quit within the first 45 days of employment
30% of new employees voluntarily leave their jobs within the first 90 days
32% of employees find onboarding confusing, with 22% describing it as disorganized
Just 12% of employees ‘strongly agree’ that their employers do a good job with onboarding

For decades, many companies have viewed employee onboarding as having one main purpose: administrative task completion. This consists of getting employees onto the organization’s payroll system, enrolling them in benefits plans and completing legal and compliance paperwork. While these tasks are necessary, they can be completed quickly and don’t significantly impact employee engagement, productivity, retention and long-term ELTV.


From “employee onboarding” to “immersive onboarding”

I’ve long advocated for renaming employee onboarding to “immersive onboarding” to better convey the real mission of this important HR process. This approach helps new employees to immerse themselves in their job, team, company culture and mission. When onboarding is immersive, new hires are better equipped to navigate early challenges by connecting with colleagues who can offer relevant and specific support.

The key to successfully executing immersive employee onboarding lies in having a structured onboarding plan that includes automation, reminders and a central hub of information. This setup allows new employees to fully explore and understand all aspects of their company and role.


What best-in-class onboarding looks like

Using this immersive lens, a best-in-class onboarding process includes:

• Pre-boarding employees before they even start to fill out essential forms before the first day

• Having team members reach out and set up meetings so they immediately feel a sense of belonging

• Introducing them to company-culture-centric activities like employee resource and affinity groups, mutual interest channels and conversations and mentorship opportunities

• Creating a 30/60/90-day goal and plan to help employees understand their initial or near-term goals and priorities and how these fit into the longer-term expectations for their role

• Investing in employees’ long-term development by having them share their career goals and align them to their role to help them visualize their future at your company and demonstrate that you’re committed to their long-term success

• Keeping an open door for feedback and questions along the way

Combining an immersive onboarding mindset with practical program features (like assigning an onboarding buddy or having a diverse set of employee levels and roles participate in a new employee orientation) separates the good from the great programs.

Additionally, allocating more time and resources to this type of onboarding is paramount in driving productivity, increasing retention and fostering a workforce that acts as brand champions – all of which correlate with a higher employee lifetime value.

“Feeling connected” = employee retention

Are your employees connected to your company’s purpose? Industry research published in the Harvard Business Review revealed that 28% of employees do not feel fully connected to their company’s purpose or mission. Feeling and acting connected to an organization’s mission can mean a few different things. These can include understanding one’s role, building relationships with their team and colleagues, aligning with business priorities, perceptions of fairness in compensation and experiencing career progress. Additionally it includes embracing business’ core values that underpin its corporate culture.

So it’s no secret that the degree to which employees feel connected and aligned with their job is highly correlated with whether they are considered a “retention or flight risk.” Less connected employees are more likely to voluntarily leave the company.

Keeping a pulse is imperative

It’s essential to keep a pulse on how employees are feeling. This might look like conversations with direct managers during weekly 1:1s; however, there needs to be a strong sense of sufficient trust between them. In the absence of trust, companies can use regular anonymized surveys or aggregated feedback from focus groups. Also, AI-enabled “sentiment analysis” can be used to detect common words and themes in anonymized emails and other internal communication forums, which can indicate overall feelings of connectedness.

The hidden importance of employee turnover

In HR and talent management, it’s well-known that keeping employee turnover low, especially among strong performers, is essential. It’s not just about the immediate cost like hiring someone new, but also the ripple effects. Losing a team member can affect the productivity of teammates and delay projects. Plus, if the departing employee has strong customer relationships, it can be even more costly and potentially risky for the business.

As if these downstream adverse effects of employee turnover (all of which can significantly affect ELTV) aren’t concerning enough, there are still other costs less visible or quantifiable in a turnover analysis. An example might be the ability to retain key employees, especially those most critical to business success. Moreover, this can easily lead to adversely impacting employer brand reputation and attractiveness, therefore reducing the organization’s ability to attract and source top talent.

Some tips for CHROs and talent executives

Here are three actionable tips that executives responsible for ensuring the retention of top talent (thus maximizing ELTV) might want to seriously consider:

1. Adapt to evolving career goals: Career paths are less linear than in the past. Regular sync-ups or check-ins should be conducted with employees to determine if their career goals are the same or changing to some extent. When an employee feels their career goals are not being supported through learning and development or internal mobility opportunities, they become more of a retention risk. In fact, in the context of an “employee journey,” many organizations might want to institute a practice that allows and even potentially encourages high-performing employees to “explore” other skill sets and career paths when they find themselves at the inflexion point of not being as energized and motivated about their career/role as they once were.
   
   Employees can also explore new skills and career paths by participating in projects and initiatives with cross-functional, diversely-skilled teams. When employees reach the crossroads of deciding “should I stay or go,” they can at least discuss with their manager the possibility of being exposed to new opportunities.
   
2. Encourage skill diversification: To retain and maximize ELTV, HR and talent leaders should uncover and utilize skills that employees may not use in their current roles. By recognizing these hidden talents, organizations can better leverage employees’ full potential to positively impact and deliver value to the business, keeping them engaged and extending their time with the company.
3. Recognize and leverage hidden skills: Finally, employee value indicators (EVIs) is a concept I created and promoted many years ago. It pertains to key benefits accruing to an employer such as employee retention and productivity. This includes job satisfaction and feeling connected and highly engaged at work, and when the various key sources of value they deliver are recognized and possibly tracked by their organization.
   
   Employees at the height of their productivity and impact within an organization are much more inclined to sustain their high level of motivation and engagement when they’re viewed more holistically as a major asset, versus someone simply performing in a particular job or role. An example of EVI might be when someone tends to refer job candidates who become high performers, or surfaces impactful ideas that improve operations or funnels leads to the sales team.

While technology innovations play a vital role in the success of today’s HR and talent executives, innovations in mindset and strategy are equally as important. Employee lifetime value has gained in popularity in recent years and is clearly a source of pride for various architects of the people side of a business. That said, accelerating and then sustaining an employee’s “peak performance and impact cycle” is more than a way for CHRO’s and talent leaders to think about their roles – employee lifetime value can be a company’s true competitive advantage.

Interested in learning more about how to develop a next-level employee onboarding program that will boost your ELTV? Download this great checklist so you can focus on what really matters.

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